He said: "Getting a discount with your plumber by paying cash in hand is something that is a big cost to the Revenue and means others have to pay more in tax.

"I think it is morally wrong. It is illegal for the plumber but it is pretty implicit in those circumstances that there is a reason why there is a discount for cash. That is a large part of the hidden economy."

The Government loses about £2 billion each year to the black economy as tradesmen fail to pay VAT or income tax by not declaring payments and keeping them "off the books".

Mr Gauke's comments, in an interview with The Daily Telegraph, come as HM Revenue and Customs plans an amnesty to encourage workmen to pay their fair share of taxes.

Earlier, Mr Gauke announced tax advisers who use avoidance schemes that push the law to its limits will be named and shamed in a crackdown to help recoup £5 billion for the public purse.

When tough decisions needed to be made to cut the budget deficit, it was galling for the hard-working majority to see others shirk their civic duty by using aggressive avoidance schemes, the minister told the think-tank Policy Exchange.

His comments came as the Government launched a consultation paper on its planned reforms. It follows a wave of disclosures about the financial loopholes used by the rich and famous to legally side-step hefty tax bills.

Mr Gauke later told BBC2's Newsnight some Tory ministers may have previously paid workers in cash, but denied doing so himself. "I've never said to a tradesman, 'If I pay you cash, can I get a discount?'," he said. But asked if colleagues had, he replied: "I don't know, but if people do do that they have to do so with the recognition that means taxes will be higher for the rest."